| Summary of Contents
| STOCK UPDATE Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs105
Current market price: Rs77 New orders in bag, execution a key challenge The company has bagged orders worth Rs913 crore in Bhutan for construction of 720MW hydroelectric projects. The expected margin in the newly awarded projects is around 20-21%, which we believe is positive for the engineering, procurement and construction (EPC) division of the company. Further, the company has successfully completed two mega projects, namely the Karcham Wangtoo project and the Yamuna Expressway project, and will start generating revenue in the near term. Further, the cement division has posted a robust 40% volume growth for February 2012 due to an improvement in the cement demand and capacity addition. With the increase in the price of cement in the past couple of months, the realisation and EBITDA per tonne of cement in Q4FY2012 are expected to improve on a sequential basis.
Valuation: We continue to like JAL due to its diversified business model and aggressive expansion plan. However, the cost pressure in the cement division and the fluctuating profitability in the construction division will be the key risks. In terms of valuation, we continue to value the stock using the sum-of-the parts (SOTP) valuation method and arrive at a value of Rs105 per share. We maintain our Buy recommendation on the stock with a price target of Rs105. At the current market price, the stock is trading at PE of 25.1x FY2012 and 18.5x FY2013 earnings estimates.
SHAREKHAN SPECIAL Monthly economy review Economy: Industrial growth remains subdued; inflation increases -
In January 2012, the Index of Industrial Production (IIP) grew by 6.8%, which was significantly higher than the market's expectations. The higher than expected performance was led by a strong growth in the manufacturing sector (up 8.5% year on year [YoY]) and a sharp jump in the non-durable consumer goods sector. -
The Wholesale Price Index (WPI)-based inflation for February 2012 came in at 6.95%, higher than the Street's expectations. The inflation rate for December 2011 too has been revised upwards to 7.74% from the provisional figure of 7.47%. -
The growth in exports remained weak showing an increase of 10.1% YoY (up 6.7% in December 2011). Imports grew by 20.3% YoY (up 19.8% in December 2011). The trade deficit for January 2012 came in at $14.7 billion, higher than the trade deficit level recorded in December 2011. The trade deficit increased by 117.9% YoY. Banking: CRR cut by 75 basis points; interest rates likely to decline in Q1FY2013 -
In its last policy meeting, the Reserve Bank of India (RBI) had maintained the status quo on the interest rates. However, prior to the monetary policy the RBI had reduced the cash reserve ratio (CRR) by 75 basis points (125 basis points since January 25, 2012). However, at the March 15th mid quarter policy review the RBI kept the rates unchanged. Going ahead, if inflation moderates or the government initiates steps for fiscal consolidation the RBI may reduce the repo rates in the April 17th policy review meeting. -
The credit offtake registered a growth of 16.4% YoY (as on March 9, 2012), which was higher than the growth of 15.8% recorded in the previous month (as on February 10, 2012). The credit growth is in line with the RBI's guidance of 16%. -
The deposits registered a growth of 13.9% YoY (as on March 9, 2012), which was lower than the 15% year-on-year (Y-o-Y) growth seen during the previous month (on February 10, 2011). The growth in the deposits has fallen due to the higher yields offered by the other debt instruments. -
The credit-deposit (CD) ratio was at 76.7% (as on March 9, 2012), higher compared with the 75.6% CD ratio as on February 10, 2012. Meanwhile, the incremental CD ratio increased to 109% for the period, which was higher than the ratio seen during the previous month, reflecting a slower deposit growth and tighter liquidity in the market. -
The yields on the government securities (G-Secs; of ten-year maturity) stood at 8.6% as on March 28, 2012, in line with the previous month's levels. The G-Sec yields across the long-term maturities have increased on a month-on-month (M-o-M) basis. Equity market: FIIs remain buyers -
During the MTD period in March 2012 (March 1-26), the FIIs were net buyers of equities and the domestic mutual funds were net sellers of domestic equities. For the MTD period in March 2012 (March 1-26), the FIIs bought equities worth Rs8,702 crore while the mutual funds sold equities worth Rs1,081 crore.
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